Motorola cuts 2,000, sees flat 3Q

Beleaguered technology giant Motorola Inc. on Thursday lowered its third-quarter earnings forecast and said it will lay off another 2,000 workers in its wireless infrastructure business by the end of the year.

The Schaumburg-based company said sales will be flat in the third quarter, rather than up 5% over the second quarter as previously expected. Motorola also said it expects a third-quarter loss of 5 cents to 8 cents per share. Previously the company expected a 5-cent-per-share loss for the third quarter; its second quarter loss was 11 cents per share.

A Motorola spokeswoman said the company targeted its Arlington Heights-based Global Telecom Solutions Sector unit for the latest round of layoffs because of slower-than-expected growth in that sector. The layoffs will be global, she said, declining to quantify the local impact.

The latest news has prompted Todd Bernier, an analyst with Morningstar Inc. in Chicago, to question Motorola's earlier statements that they'd break even by the fourth quarter.

"Right now, there are no deals being signed, and semiconductors are brutal" Mr. Bernier said. "They blew it for the second quarter, they blew it for the third - so what makes anyone think they'll be able to turn it around in the fourth?"

Thursday's job cuts bring the total number of layoffs at Motorola to 32,000 since the company first started reducing its workforce last fall.

In midday trading Thursday, Motorola shares were down to $14.60, after opening at $15.95.

The latest announcement continues a tumultuous week for the company.

On Wednesday, Merrill Lynch & Co. downgraded Motorola shares to "neutral" from "accumulate" based on a 5% downturn expected in wireless-network equipment sales for the rest of the year.

Yesterday, several local analysts said Motorola, as the number three player in the handset market, will suffer more from the slowdown than industry leaders Nokia Oyj and Ericcson AB. Nokia, for instance, has been able to able to maintain a strong balance sheet and good profits despite the industry-wide slump.

The company tried to shine the spotlight on its technology development talents Tuesday when it unveiled a new computer chip that is durable and cost-effective and runs at higher speeds than anything on the market.

But some analysts view Motorola's chip announcement as nothing more than well-timed window dressing that might help the company sell its troubled semiconductor unit, which manufactures the new chip.

"The Street is getting sick of these 'revolutionary' breakthroughs from Motorola, especially when revenues won't be coming for two to three years," said Morningstar's Mr. Bernier.

Motorola expects to be granted some 300 patents for technology related to the chip, which is made from a combination of silicon and gallium arsenide. The company is hoping to capitalize by selling its competitors licenses to use the technology.

Mr. Bernier, however, questions whether Motorola's rivals will bite. "I seriously doubt that the big boys (like Alcatel and Intel) will be sitting around saying, 'Yeah, come on in, take our market,' " he said.

Joseph Correnti, an analyst for Wayne Hummer investments in Chicago, questioned the commercial viability of a chip that offers computing power that is far too advanced for the average consumer.

"When you're talking about your basic consumer in the suburbs, from day to day, anything under one gigabyte is still more than they need." Motorola's new chip is 35 times faster than chips used for consumer products like DVD players.

The new chip is more likely to appeal to niche corporate and government customers that need high-level computer processing, Mr. Correnti said--a much smaller market than the consumer segment.

Analysts agree, however, the new chip could make Motorola's semiconductor unit more attractive to potential buyers.

"If they are doing this to clean up the business to get rid of it, I think that's a good thing," Mr. Bernier said.

Motorola "should probably sell (the unit) if they can get a fair return on what they've invested," Mr. Correnti added.

A Motorola spokesman on Wednesday insisted the company has no plans to sell its semiconductor unit.

"I would think this technology would produce longer-term benefits than the short-term profits they'd get from selling it off," Mr. Stern said. "It sounds like this is a very significant piece of technology."